Delusional Germany

Germany is turning against Europe, exemplified in the rise of an openly anti-euro political party and widespread opposition to the ECB's measures to support the eurozone and stabilize financial markets. Three illusions are responsible for the German public’s growing rejection of European integration.

BERLIN – In recent days, Germany’s representative on the European Central Bank’s governing council has expressed strong disagreement with the ECB’s decision on November 7 to cut its benchmark interest rate. Now the European Commission has opened an investigation into whether or not Germany’s huge current-account surplus is causing economic damage in the European Union and beyond. This investigation and criticism of Germany’s export-based growth model has incited outrage in Germany. Is Germany becoming a scapegoat for Europe’s problems, or is it really out of step with the EU and the world economy?

Germans have long been among the most europhile of peoples, but their mood has gradually been turning against Europe and its common currency, the euro. An openly anti-euro political party has emerged, and, though it did not make it into the Bundestag in September’s general election, it has fertile ground to grow. This is tragic, because Germany should be driving the development of a persuasive vision for Europe’s future.

Three illusions are responsible for the German public’s growing aversion to European integration – and for many Germans’ failure to understand that Germany has the most to lose from the euro’s collapse.

I see you engage much in naming things, ideologies, and disagreeing, but do not propose something. The reason for theories is not to make suitable boxes for ideas, but to understand and move forward. Please reconsider your priorities, and stop the game of throwing around characterizations, or focusing on historical names, without any proposal. You are not the holder of "the correct opinion" to judge the opinions and stance of others, much more whole whole countries. Most importantly, with your persistence in terms and names, without putting forward a proposal, and not engaging in reasonably criticizing ideas rather than the use of names, you unnecessarily complicate the discussion, as if you do not want it to advance.

In addition, if you have not yet concluded, in the aftermath of the crisis that it is unjustifiable and indefensible for virtually all money in the global monetary system to carry risk, you should re-read whatever you prefer Keynes, Hayek, or other, until you understand that everyday life cannot be engaged in complex economics anymore than you engage in, e.g., my job, computer architecture --which is *not at all*.

The perspectives of different schools of economic thought must be given room to co-exist in an ***unbiased*** monetary system. This means the monetary system must change, and, to that extend, Hayekians, mercandilists, or anyone else has the right to challenge the current system that trembles from its foundations. Not only that, but what such a system has to offer to western populations is that their money will find better returns abroad rather than in domestic employment, healthcare and education, as long as they have a high debt burden --which will be long.

Democratization of the global monetary system means an unbiased system that does not necessitate that we all run for growth, anymore than we want to, and a system that allows other schools of thought to pursue their approaches.

You should learn how to read. Please quote where I say "Keynes is a Monetarist" or "Friedman a Keynesian". There is no such reference in what I wrote, because I know these statements are not true. I do not "look like a defender of the so called "Hard Money" position," unless you need me to "look like something" to understand what I am saying.

What I say is there is legitimate challenge from those that practice money hoarding, namely Germany, to those that practice expansionary monetary policy leaving the financial system uncontrolled; not that I agree with any of these. I support an unbiased system that allows these and other types of attitude toward the economy, *without preference*: no theory or ideology should have more room in the global financial system.

Most importantly, I find it unforgivable for today's monetary system that all money (even those intended for existing goods and services in the economy) carries the risk of financialization with the excuse of unsustainable growth. I tend to believe that a *much* larger amount of reserves (50%) must be required from banks, but I am not an economist. I believe it is imperative that the infrastructure for financial transactions the must become *purely* public and liberated from private banks, so that such banks can fail, no matter their interconnectedness, and size.

By the way Mr. Kavvadias, just a sugestion, please don't take it has an attack on your position.

From your texts you look like a defender of the so called "Hard Money" position, also called by some Gold Buggers. Now the thing is that the ones that propose such measures are doing it so to protect the Capital “Rent”, i.e. the idea that the holders of money should receive a stipend even if money has no value at all...

You see, money isn’t an invention of the Devil, money is an instrument of progress and the real threat for the people who hold money without doing anything useful to society is that we came to realize that we don’t owe them nothing more then the value of money, which is literally nothing.

I suggest you the read the NMTs (New Monetarists), very enlighten positions about the role of money…

Dear Mr. Kavvadias,sorry but you were the one naming things and putting on labels.I haveno problem with labels, the thing is that you have to name them right.

Now Keynes is not a Monetarist nor is Friedman a Keynesian,get your facts right and when you are corrected for using wrong labels, just do the propper thing and admit it.
We should have no problems with in admiting when we are wrong, that's the way we learn.

"…the restoration of trust among European countries."
P Krugman, in a column published Friday, Nov 15th, also pointed to the breakdown of trust as the most worrisome feature to emerge from the Eurozone crisis. It will be very interesting to observe what course A Merkel's government pursues .

How delusional can you get?
"Moreover, real wages have barely risen; for more than 60% of German workers, they have actually fallen. Wages have risen substantially more elsewhere in Europe, despite the depth of the economic crisis. "
Rise in wages paid for with deficit spending is not sustainable; it is *not* something to be proud of or emulate. It buys politicians voters, but comes back like a boomerang in the form of interest burden.

You may be right --I do not know-- on what criteria markets use to lend to countries or set interest rates. Nevertheless, debt sustainability plays a crucial role. All I intended to point out is that debt can be sustainable, even with deficits, as long as there is sufficient growth.
[BTW, sustaining a debt/GDP ratio over 100%, requires less growth than the deficit as percentage of GDP.]

The things you say about leverage are irrelevant. Sovereign countries do not have balance sheets, do not issue loans, and do not have leverage against measurable assets, as much as markets would like that. Sovereign countries can always print money or borrow at zero interest. Constructs like the euro should abandon their submission to market terms. In fact, markets demand so, as shown with the relatively recent incident of Draghi announcing OMT and "whatever it takes".

Markets don't lend on the debt/GDP ration. First it doens't make any sense, Corporate debt market/Banks lend on you interest coverage ratio and default rate expectation /collateral value.

The ratio we use to determine leverage isnt comparing results to debt, but comparing total assets to debt, or the level of capital to Total Assets.

Second, there is no evidence of Debt/GDP influencing debt conditions. There are countries like Japan that pay low interests, UK Vs Spain, etc etc. Even in the same country you find periods where Debt/GDP is higher and the interest rates are lower.

Rise in wages in Europe periphery started way before any debt problems, so they were not financed by deficits.

By not allowing wages and prices to increase in Germany, and since currency remained the same, the German policy didn't allow for self corrections, leading to massive inbalaces on periphery countries.

Not only that, but Germany didn't evolve on the value chain, with German economic tissue remaing in second wave technologies and risking further development, depressing Europe even further.

Blue Collar Industries, like auto, that should have been tranferred for lower wages countries in Europe periphery didn't move due to lack of wage increase and labour proteccionism.

This strategy isn't sustainable,unless you think Periphery countries should have been the ones to move up in the value chain and developed into European Koreas and Chinas and started to produce eletronics to trade to Germany.

Classic Ricardian mistake, the country with absolute competitive advantages never transfers old technology nor moves up on the value chain, thats why America replaced England and Europe was replaced by Asian countries.

Executive renumerations and dividends to equity holders are cost just as ordinary salaries; the differens is that the first type of cost mainly feeds asset bubles, but salaries for lower paid people generate real growth

The first argument of the author is "I like Keynesian policies"! The supporting argument that "since the monetary union’s launch in 1999, Germany has recorded some of the eurozone’s lowest rates of GDP and productivity growth," is nonsense! Who said that there has to be growth? The constant need for growth, embedded in the global monetary system, is what causes the perpetual dependence on new credit creation (to replace previous credit retraction on loan repayment), and thus the dependence on banks.

It is perfectly legitimate for an economy, as well functioning as the German, to slow down on growth and to support with its surpluses slowing wages not to lose much in purchasing power parity (PPP). Considering the 5.2% unemployment rate the article mentions, German economy ***is*** booming and is a gigantic success in its handling of the crisis and its population's cohesion, which cannot be said for those attempting to challenge Germany's attitude toward the economy.

The second argument of the author, which he calls "second German illusion", is that the real problem in eurozone (no banking union) is not helped by German attitude. This is correct. The choice of Keynesian or monetarist values in member fiscal policy cannot and will not be made by treaties. The argument of Germany for fiscal consolidation in eurozone governments, before going forward with the full banking union is legitimate. The idea that this can go forward with putting the rules on deficit in the constitutions of eurozone countries is misguided and leads to increasing disillusion of populations regarding the euro. It is an illusion to think that treaties and constitutions can force political choices in democratic countries. Maastricht treaty is deeply flawed, in that its public debt and deficit provisions are fiscal choices, which cannot be stringent conditionalities imposed to democratic member countries. There can be a democratically decided strategy about them, but even this strategy cannot be pre-decided against all future events to come!

The only way forward for eurozone is the formulation of a deeply democratic eurozone treasury, whose role would be to set fiscal strategy for eurozone, not necessarily in a uniform way across countries, and not serving only the interests of the strongest countries', but deciding the for the whole of eurozone, among equals. All parties of all countries must be represented in this democratic decision making body, according to each country's democratic institutions. The democratic formulation of this eurozone treasury-parliament *must not* preclude changes in the democratic institutions of member countries.

The third argument of the author is completely flawed, and is mistakenly attributed both to illusion and to Germans (even more provoking the author attributes illusion to Germany and not to some or many Germans!). Eurozone crisis is because of the euro and because of the undemocratic, treaty-based mandate of the ECB, which takes away sovereign power to print money (this could not be otherwise in a common currency), but does not replace it with an obligation to solidarity among eurozone countries. An internal market needs to be formed for sovereign debt. This market should be among countries (or among countries and the ECB), and should be backed by Eurobonds.

Furthermore, the hard-currency trajectory of the ECB, needs to become subject to the same deeply democratic eurozone treasury-parliament, I described above. Central banks and *non-elected* central bankers should be accountable and should have its mandate democratically defined, and not fixed and decided among bankers. Central banks should *only* have, so called, instrument independence, and European strong countries and elites should abandon their treaty-based attempts for undemocratic central bank goal independence. Central bank goals cannot be imposed on the basis of member country veto power. They need to be fully democratized, even if this requires putting in place institutional provisions for member state exit, if countries choose so.

Many points you are right, but not on naming Europe Keynesian or Monetarist (also pelase don't name Friedman has a Keynesian, thats an insult to Keynes) and you problem with money and credit that resembles an Hayek follower.

Europe is beeing led by Austrians and Mercantilists, with industrial policies based on Fayol and Ford.

Something that many people are missing is that, an economy that is significantly self-sufficient has the right to challenge the usefulness of financialization of anglo-saxon economic trajectory, especially in the emergence of a complete and catastrophic failure of the later that this global crisis represents! The actual arguments of the Keynesian and Friedman-minded that there cannot be fiscal surpluses everywhere in the world, reflect the fact that all countries cannot be self-sufficient in the current globalized economy. This is primarily guided by financial and other industry needs that are hugely unregulated at the global level and result in a global markets project, without any political and democratic supervision. Where there is lack of political regulation of divergent interest, conflict arises. More importantly for me, where markets come first, populations come second, and actually last!

My view on this dilemma, between liberalism and ...autocratic mindsets, is that we need the supervising regulating institutions, but they need to be democratic. They cannot be fully liberal and they cannot be autocratic, but the current state of market liberalization needs to be bridled, so there can be place for both.

"many Germans harbor a deep mistrust of other European governments, and thus believe that they cannot be counted on to avoid insolvency."

"What financial markets no longer believe is that governments will do what it takes to rescue Europe from the crisis."

...enough said. The mistrust is real and ..above all.. appropriate. That is why the Euro will not work without genuine political union. Germany has long been ready for this, but France, among others, would never go along.

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